Crisis in the tax office: The cost of Covid 19 to HM Revenue and Customs

Chancellor to make a statement this week

Tax revenue down £70 billion while tens of billions spent saving jobs and the economy

Just before the first phase of Covid 19 peaked HM Revenue and Customs had a very good year. Tax revenues had peaked at £636.7 billion from more national insurance contributions, a record target of 95.3 per cent of tax due had been paid and £36.9 billion had been recovered from tax fraud and evasion. Then Covid hit.

Now as the Chancellor prepares his latest spending statement the latest annual report and accounts of HMRC and a National Audit Office report qualifying the accounts a very different picture is emerging. To give you an idea the Revenue lost £70 billion in tax revenue in five months.

The Covid-19 pandemic turned HMRC upside down and at least three planned targets will be missed this year. Just like the Department for Work and Pensions thousands of staff were moved to help handle the pandemic. But the pandemic also means a big loss of revenue , the cancellation of plans to combat firms who avoid tax by using the black market and an expected increase in money lost through fraud and error on working tax credit.|

On working tax credit it says: “As we no longer accept new claims to tax credits (with limited minor exceptions), our work to restrict error and
fraud now focuses on existing awards.. ..The continuing need to divert compliance staff to support other departmental pressures means we expect not to meet the 5% maximum target for 2019 to 2020.”

On collecting tax it says:” Due to the impact of the COVID-19 outbreak, the end of year HMRC debt balance for March 2020 is £2.5 billion higher
than forecast, coming in at £22.4 billion, significantly over the forecast of £19.9 billion… It is anticipated that the economic impact of COVID-19 will continue into financial year 2020 to 2021 as customers find it increasingly difficult to fulfil their tax obligations.”

black market tax avoidance

And on tackling black market tax avoidance – called conditionality in tax office jargon – it says:” Budget 2018 said that the government would consider legislating to introduce conditionality at Finance Bill 2019-20.
However Budget 2020, which was delayed from autumn 2019, announced that the legislation would be included in Finance Bill 2020-21. Internal milestones were adjusted to work towards that revised timetable.”

You have to turn to the report by the NAO to find out the real impact of Covid-19 on the tax offices. For a start offices were deserted. 80 per cent of the 50,000 staff worked from home and as a result the public faced long delays in getting through to HMRC because only 7000 had secure phones to handle queries.

People kept waiting on the phone

From March 2020 there was an increase in the time HMRC took to answer telephone calls, peaking at 14:59 minutes in May and improving to 9:15 minutes in June 2020.

Like DWP large numbers were switched to working on Covid-19 work.

“At the peak, in May 2020, of 58,592 full-time equivalent staff, 9,097 (16%) were reallocated to COVID-19-related roles. Of the two largest groups of staff, 25.2% of staff in the customer services group were allocated to COVID-19-related work in April 2020 and 17.3% of staff from customer compliance group were allocated to COVID-19 in May 2020.”

Numbers have since fallen but will probably have gone up again with the second wave. The key schemes were the Coronavirus Job Retention Scheme, Self Employed scheme and “Eat to Help Out”. The Job Retention Scheme is thought to have been targeted by organised crime and billions of pounds may have been defrauded. See my article in Byline Times.

As a result “yield from its tax compliance activities is likely to
reduce in 2020-21. For comparison purposes, HMRC achieved a compliance yield of some £7.5 billion in the period April to June 2020, 51% less than the yield of £15.4 billion achieved in the same period in 2019-20.”

tax losses

The detail over tax losses is daunting. Some £70 billion between April and August this year -£38 billion alone from VAT. Some £13.5 billion from tax and national insurance; Another £10 billion from Corporation tax and over £4 billion from fuel duties as people stopped travelling.

Receipts recovered at the end of the first lockdown in July and August, particularly VAT by £10 billion.

HMRC: Pic credit: David Palmer

However a tables in both report also reveal how much HMRC is paying out and how much they don’t how much it will cost. The furlough scheme was £39bn up to September; Eat Out to Help Out cost them £522m for August, Payments to the self employed cost £13bn but they don’t yet know the real cost of a host of projects. Some £1.5m was set aside for putting up basic working tax credit by £1045 for the tax year but figures for the claims are not available. Another £200m was put aside for repaying employers contributions to statutory sick pay but we don’t know how much was spent.

At least eight other measures spending figures are not available – these include the concessions on stamp duty for homer buyers, deferring tax payments for the self employed, VAT reductions on food and accommodation, exempting personal protective clothing from VAT, and cutting import duties on essential medical equipment.

We do know that as of June £28 billion of VAT was deferred.

Finally the Department’s bad record of recovering payments on working tax credits led its annual accounts to be qualified by the auditor general.

Some £1.11 billion was overpaid or almost 5 per cent of all payments and it will get worse this year. But because staff disruption over Covid 19 we won’t know this year’s figure until next June. Covid-19 could currently slow the transfer of people from working tax credit beyond the current delayed deadline of 2024.

Only 10 people switched to universal credit

Just TEN people instead of an expected 2000 transferred to Universal Credit last year under a new pilot project. The project has now been halted. Covid 19 did encourage a number of people to voluntarily transfer after the rates were temporarily raised.

Meanwhile the huge expense of preparing for Brexit – temporarily stalled by Covid 19 for part of the year – is now estimated to have cost £516m in the last tax year and there are now 6,100 staff working on it. Altogether since the referendum it has cost not far short of £800m because they have to prepare for so many scenarios.

Tackling tax demons: Trick and treat at the heart of the City Establishment

On Halloween eve an unique invitation only conference took place in the historic  and just slightly spooky Livery Hall in the City’s historic Guildhall.

For six hours the Westminster Establishment politely occupied the bastion of  the City Establishment to discuss a subject that perhaps capitalism would like to go away – global tax evasion and tax avoidance.

Margaret Hodge;

Margaret Hodge;

Margaret Hodge, chair of the Commons Public Accounts Committee and scourge of tax avoiders Google, Amazon and Starbucks, brought together business chiefs, politicians, tax accountants, civil servants, charities, trade unionists and the odd pesky journo like me from Britain and across the world.

The event was unique because on a grand scale it put people in the same room who would verbally be at each other’s throats and tried to find some common ground to tackle a world-wide scourge.The scourge that is making the elite ever richer and leaving the poor, and increasingly the middle classes,left behind as well as exploiting developing countries.

The result was interesting – both for unpredictable quotes and for disclosure of what is really happening to try to tackle this.

One of the  most memorable quotes came from Justin King, the thoughtful former CEO of Sainsbury’s, who admitted that “If business becomes more unpopular than politicians then we really do have a problem”. He also warned no doubt with declining Tesco in mind – that business rates and corporation tax were both on the way out – as business needed less real estate to function and countries vie with each other to reduce corporation tax.

Another memorable moment was Will Morris, chair of the CBI Tax Committee, backing the Public and Commercial Services Union case that George Osborne was wrong to axe a third of HMRC staff. What next Mark Serwotka , the general secretary, sharing a platform with the CBI?

Or for Prem Sikka, professor of accounting at Essex University, who pointed out, after accountants defended their role, that not one accountant had ever been disciplined by their venerable professional body, dating from the 1880s, for producing an illegal tax avoidance scheme.

The other striking feature of the conference in the  male dominated City was the role played by powerful women on both sides of the argument.

For me the most striking was the speech given by Grace Perez-Navarro, Deputy Director of the OECD Centre for Tax Policy and Administration. She revealed that the OECD were not just talking about it but had secured some 90 plus agreements with tax authorities like the Cayman Islands, Gibraltar among many others to exchange information but not to make it public yet. She is also a firm advocate of forcing companies needing to release country-by-country reporting of profits generated by multinationals.

“Our efforts to increase transparency, combat offshore evasion and counter tax avoidance by multinational enterprises are having an impact on the ground and helping countries to make sure that all taxpayers pay their fair share,” she said.

But there were also outstanding contributions by Irene Ovonji-Odida, ActionAid chair, on what needed to happen in Africa and on the pro business side by Heather Self, of  lawyers Pinsent Mason, the capitalist’s best legal friend and from the floor by Maya Forstator, an independent researcher who has challenged the claims by some of the world’s leading charities like Christian Aid and Action Aid on the effects of multi nationals taking money away from developing countries.

We also learnt some curious irrelevant information  about the cars some of the speakers drive. Richard Murphy, the Tax Justice accountant used the analogy that he drove an 11 year old car to show how out of date international taxation law is only to be trumped by Grace Perez-Navarro who drives around in a 22 year old motor.

There were no instant changes arising from this conference. More important was the fact than in an age of increasing inequality – the issue of tax is certain to remain  high on the agenda and there are active people wanting to deal with issue to make things happen.

Meanwhile as Margaret Hodge wound up the conference with a  damning speech on what more needed to be done, in another part of the Guildhall, another Parliamentary select committee chair, Keith Vaz, was undermining another powerful woman, Fiona Woolf, the current Lord Mayor of London, who has been appointed by Theresa May, the home secretary, to head the child sexual abuse inquiry

The home affairs committee chairman released seven drafts of her letter outlining her links with Leon Brittan,who is likely to be investigated over the disappearance of crucial home office documents,on the issue.showing how she kept changing her story. Today people think she will be under enormous pressure to quit.








Time for the NHS to come clean on its tax avoiding bosses


An amazing piece of evidence revealing that they were up to 2,400 off pay roll people in the NHS was slipped into an inquiry by the House of Lords by the Department of Health last week.

The findings published today in a report by Exaro News reveals that as many NHS staff as Whitehall staff were avoiding paying tax and national insurance at source – bringing the total in government to nearly 5000 in 2012.

Now no doubt some people on short-term contracts can justify this but what is becoming increasingly clear from the evidence submitted by the Department of Health ( see page 91 onwards) that many do not.

The worst offenders appear to be high earners at the top of NHS Foundation Trusts – where over a third -51 out of 147 – had someone at the top avoiding paying tax and national insurance at source. Someone was even off pay roll and claiming a full pension from the taxpayer as well!

 Monitor,the regulatory authority for NHS Foundation Trusts, is currently conducting an inquiry into exactly who is benefiting – and as a result numbers are shrinking.

 But we don’t know yet whether Monitor is going to name and shame the trusts and the people taking advantage of this tax loophole. Well if the organisation  has got any teeth it should be like the National Audit Office  and publish a full and detailed report. Avoiding tax while working for the cash strapped NHS is particularly nasty and greedy and should be stamped out. Let’s see if Monitor is going to do its job.

Is your NHS boss a tax avoider? You’ll soon find out

NHS bosses: subject to tax avoidance inquiry

NHS bosses: subject to tax avoidance inquiry

The tax avoidance scandal that shook up Whitehall is soon to spread to the NHS. As reported earlier following the exposure of Ed Lester, the former head of the Students Loan Company, for channelling his salary through a personal service company to avoid  paying national insurance and tax at source. The practice was still going on in Whitehall two years after the event and 125 civil servants who quit have been reported to Revenue and Customs.

 Now the NHS is to face the same scrutiny. Reports in Exaro News and Tribune last week highlighted the issue – with the findings now likely to be sooner rather than later.

An inquiry has been ordered by Jeremy Hunt, the health secretary, after Danny Alexander, Chief Secretary to the Treasury requested it.

Some two years ago a lesser inquiry – just into board members of NHS bodies – revealed some 28 out of 84 people were on this bandwagon. Earlier examples included   Robert Clarke, finance director at NHS Professionals, which supplies temporary workers to the health service, was paid at least £534,000 over three years through a personal-service company.

Another former chief executive of NHS Professionals, Neil Lloyd, was paid £631,000 off payroll over three years.

This time the Health Department sounds uncompromising. A spokesman said:

 “Tax avoidance will not be tolerated, and there is no excuse for it in the NHS, or any other part of the public sector.”

The Trust Development Authority, which provides guidance on governance to NHS trusts, is working with Monitor, which regulates the running of health bodies, to carry out the investigation to ensure that the use of off-payroll contracts is in line with guidance.

targeted is anybody earning over £58,200 a year or has been in post for more than six months and being paid through a personal service company.

In my view it cannot come soon enough. Tax avoidance deprives the Treasury of cash that could be used for better public services. Tax avoidance in the cash strapped NHS is actually depriving hospitals and communities of vital cash. All these people also earn a fair whack. They are not those forced to take a one per cent pay rise and see their living standards go down. On the contrary through tax avoidance they get richer on the backs of others.


Ed Lester gets new £135,000 a year Whitehall job

Ed Lester heads the land registry whose HQ was sold for £37m recently. Pic credit:

Ed Lester heads the land registry whose HQ was sold for £37m recently. Pic credit:

No problem for top people – even in centre of controversies – getting a new job in Whitehall.

Ed Lester, the former chief executive of the Students Loans Company, whose tax arrangements caused a furore and led to a Whitehall wide inquiry, has been appointed by the  Department of Business, Innovation and Skills to head the Land Registry.

Not surprisingly there is no mention of his controversial past in the Whitehall news release .The same ministry who approved his appointment to the SLC on a deal which meant he received no deductions for tax and national insurance at source, has now appointed him to head the Land Registry – the body  alongside Companies House I used to trace his company and address.

Mr Lester will get a £135,000 a year – somewhat less than at the SLC – and he will pay tax and national insurance at source. He will be eligible for a 20 per cent performance bonus.

Business and Energy Minister Michael Fallon said:
“Ed Lester has the right skills, experience and ambition to meet the new challenges that face the Land Registry. His previous experience of running the Student Loans Company will help to ensure that the Land Registry can become a more nimble, digitally driven organisation.

He is taking on a tough job. The Land Registry  is in  the middle of a controversial plan to slim down its workforce and could eventually be seen as a candidate for privatisation. It has to improve efficiency by 60 per cent and cut costs by £40m a year over five years.

He is likely to find himself under close scrutiny and his decisions will affect every home and business owner in the country when they come to sell or buy a property.

My Political Journalist of the Year Award: Praise be the Whitehall moles

Revealed: My secret source in Whitehall Pic Credit:BBC

Revealed: My secret source in Whitehall Pic Credit:BBC

Today I am really thrilled to win Political Journalist of  the Year Press Gazette awards for Exaro News -award  last night.

But the real tribute should go to a couple of fearless Whitehall moles who put me on the trail of the story  of massive tax avoidance at the heart of Whitehall.

While journalists must never reveal  their sources, there is at least one good tip from this for journos pursuing questionable deals done in Whitehall.

And it came from first source. He was the originator of the suggestion that senior people in Whitehall had set up  highly complicated arrangements to avoid paying any tax and national insurance. And he had heard a rumour  that one of the most grotesque examples was a recent appointment to the top job at the Students Loan Company. A left of centre character who firmly believed in the ethos of public service  he was worried that Whitehall was being corrupted by the widespread tax avoidance. We now know it is rife.

But rather than leak information which breaks the Whitehall rules we devised a different strategy. Between us we drafted a targeted freedom of information request to the Student loans Company and Vince Cable’s Department for Business  which would make it very difficult for either department to deny. During our meetings at various hostelries across London – I won’t divulge his favourite malt  in case the Whitehall thought police try to trace him- we developed the story.

Sure enough after a suitable interval back came some 60 pages of complicated e-mail traffic between Bis, the Student Loans Company, the Cabinet Office and more surprising, the outside advice from private management consultants – one paper was volunteered because they were worried we would distort their opinions – and even letters from Revenue and Customs approving the arrangement. We spent further hours  at certain hostelries analysing the results which were far worse than he thought. We spent much more time chasing up every conceivable angle before Exaro and BBC Newsnight  were ready to go with the tale.

The result was immediate. Ed Lester, the head of the Student Loans Company, had his tax arrangement stopped and Danny Alexander, chief secretary to the Treasury who had personally approved his salary had to admit he didn’t even spot the tax avoidance. He ordered a Whitehall wide inquiry.

But it was not all over.  The inquiry identified 2500 civil servants on similar deals. But had they gone too far? Enter a new mole from another part of Whitehall.  Seeing Danny Alexander’s letter to George Osborne he was furious. He felt Alexander had caught too many in his net, including genuine freelances  having bona fide reasons for working this way. This guy, a mischievous right of centre social libertarian character who enjoy’s Guido Fawkes blog, decided the world should know before Danny had a chance. Hence another story for Exaro News and BBC Newsnight.

One might feel sorry for Danny – damned if he doesn’t, damned if he does. Except of course while we all suffer his cuts  paradoxically he has never been so wealthy in his life as a Cabinet minister. And he has lots of  dinners with his chum. George Osborne.

Good for him though in ordering the inquiry. But the greatest thing of all is that he couldn’t cover this up even if he wanted to – thanks to the use of freedom of information. No wonder Jack Straw and Tony Blair now regret giving the public and journos the chance to find out what is really going on government.

now with full cast of characters to appear before MPs

Westminster Confidential

On Monday BBC chiefs will appear before Parliament’s most powerful committee, the Commons Public Accounts Committee.

They will be there to answer questions on the vexed question of employing people through personal service companies to avoid paying tax and national insurance at source.

The BBC will be joined be civil servants from Whitehall and local government who have all been exposed of using this device to employ people and avoid paying tax and national insurance at source.

The scandal was first exposed by me on the ExaroNews website (  and BBC Newsnight when it was discovered that Ed Lester, the Student Loans chief, had used this device to be paid £182,000 a year.

The furore that followed led Danny Alexander,Chief Secretary to the Treasury, to launch an inquiry which discovered that another 2500 civil servants were using the same device across Whitehall. The review’s findings were also leaked to…

View original post 440 more words

Why Margaret Hodge must hold the British Tax Avoidance Corporation to account: Updated

George Entwistle, new director general. Time to tackle tax avoidance? pic courtesy: Metro

On Monday BBC chiefs will appear before Parliament’s most powerful committee, the Commons Public Accounts Committee.

They will be there to answer questions on the vexed question of employing people through personal service companies to avoid paying tax and national insurance at source.

The BBC will be joined be civil servants from Whitehall and local government who have all been exposed of using this device to employ people and avoid paying tax and national insurance at source.

The scandal was first exposed by me on the ExaroNews website (  and BBC Newsnight when it was discovered that Ed Lester, the Student Loans chief, had used this device to be paid £182,000 a year.

The furore that followed led Danny Alexander,Chief Secretary to the Treasury, to launch an inquiry which discovered that another 2500 civil servants were using the same device across Whitehall. The review’s findings were also leaked to Exaro and BBC Newsnight.

Less well covered is that the BBC and local government were up to the same thing . Until now both sectors have got away with it. on Monday they can be called to account and should be.

The BBC has enjoyed the protection of Jeremy Hunt, the culture secretary, and as never been required to disclose the full picture.  Indeed the biggest disclosure came from David Mowat, a former member of the public accounts committee, who  found out through a freedom of information request that the BBC employed 3000 people- more than the whole of Whitehall – through personal service companies. And none of these were journalists who are exempt from FOI because they are regarded as ” talent.” So the full  picture is bound to be much,much bigger.

Similarly Eric Pickles, the communities secretary, has not followed through vigorously what is going on in local government.No attempt has been made to probe tax avoidance at the London boroughs of Barnet, Hackney and Hammersmith and Fulham or the blatant disregard for employing people directly on the Isle of Wight.

Monday will be a great opportunity for the terrier instincts of Margaret Hodge, Richard Bacon, Stephen Barclay, Meg Hillier and Fiona Mactaggart to name but a few to ask a few very pointed questions and demand explanations from the BBC and town halls. I hope they will not disappoint and not be put off by Whitehall  sniping about the way they question witnesses.

The BBC after all would not exist if it did not receive licence  fees from taxpayers and even non taxpayers. Its new director general George Entwistle, should make the Corporation becoming more transparent as a priority. Over to you, Margaret.

Since this has appeared a full cast list of people  summoned to appear has been announced. They are:

 Carolyn Downs, Local Government Association, Zarin Patel, Chief Financial Officer, BBC and David Smith, Head of Employment Tax, BBC; Sir Nicholas MacPherson KCB, Permanent Secretary, HM Treasury, Howard Orme, Finance Director, Department of Business, Innovation and Skills, Lin Homer, Chief Executive and Permanent Secretary, HMRC and William Hague, Executive Director, Efficiency and Reform Group, Cabinet Office.

Followers of the story might be interested to know that documents released to me  under Freedom of Information point to Harold Orme being directly connected to the controversial appointment of Ed Lester, head of the Students Loan Company, with the knowledge that he would not have any tax or national insurance directly deducted by the Student Loans Company. This is a good call by the committee.

Exaro  News will have a story up on their website  on Monday evening –  after the committee has met.

Ed Lester to quit head of Student Loans Company

Ed Lester to quit on January 31; Pic cap courtesy of Daily Telegraph

Ed Lester, the civil servant whose tax affairs led Danny Alexander, Chief Secretary to the Treasury to order a  Whitehall wide inquiry, is to step down from the job next January.

The official who took over £182,000 a year in salary and pension without paying tax or national insurance at source is to leave when his current contract ends on January 31 next year. The SLC is already advertising for a successor.

Full details of the decision are in my piece on the website. Suffice to say since the story broke earlier this year Mr Lester has had to go straight onto the public pay roll and can no longer be paid through management consultants, Penna, to his own personal service company, Placepass, based at his home on an island on the Thames near Marlow.

His company is in the process of being closed down and now 2400 other civil servants and senior NHS executives  paid off pay roll may have to become direct employees by September. A review announced by Danny Alexander to Parliament will also mean that the following tax year people who hold controlling posts in private industry will no longer be able to do this either.

All these changes came from one well placed Freedom of Information request which exposed Mr Lester’s tax arrangements which had even been approved personally by Mr Alexander and  David Willetts, the universities minister. Mr Alexander has admitted to me he didn’t even realise the tax benefits when he approved the post.

 To his credit since then he has ordered the review and been shocked by the findings. But I am expecting a strong reaction from business when  it sinks in what has happened.

Update: In a statement issued today (Saturday) about his decision Ed Smith, chair of the Students Loans Company, said: “Ed Lester’s was appointed as interim CEO of  Student Loans Company in 2010. In that time he has turned the company around and his leadership has been outstanding. He is highly regarded by the Board, BIS and colleagues across the Higher Education sector. “Following the period as interim CEO, Ed was offered a fixed two year contract as substantive CEO from January 2011. This contract is due to expire in January 2013 and Ed has always made clear his intention to move to a new role at that time. As recruitment to such senior posts in public sector can be elongated, we have started the process to recruit Ed’s successor now to ensure they are in place prior to him leaving.

“Ed’s planned departure from Student Loans Company has always been a matter of public record. It is in no way linked to the tax arrangements in his contract agreed by BIS, HM Treasury, HM Revenue and Customs and the Head of the Civil Service.”

Website passes 100,000 views

This website in just over two years has now hit the 100,000 mark – 100,130 to be precise if you must know. This is far higher than I expected but then I didn’t intend to write over 100 blogs in the same period.

The home page itself has had over 16,000 hits. But for the record the six most popular stories are the tale on Blair’s donors getting 6,5 per cent interest on millions of pounds of loans to Labour (4324 hits); the abortive attempt to criminalise bloggers in Barnet (3433); the armchair audit of Brian Coleman, Barnet Tory councillor and chair of London fire brigade (2843); the Ed Lester tax scam (2785); Francis Maude’s ” House of the Rising Spads” (2702) and the  privatised London fire company Assetco facing a  financial crisis (2592).

 The most popular pic on the site- believe or not – is a joint of roast beef -used to illustrate the true blue Tory rebels fighting Cameron ( an amazing 20,000 views).

 Special thanks to the many people who boosted these figures including Guido Fawkes site, Political Scrapbook, Broken Barnet (Mrs Angry ),Mr Mustard,Liberal  Conspiracy,the London Fire Brigades Union,Political Betting, the Guardian and many others.

So far this year the site has had over 15,000 hits – compared to 17,000 for the whole launch year 2010. Interesting times.